Month: August 2012

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 21 August 2012, 07:15 EDT

SPOT MARKET prices to buy silver rose to their highest level in two months Tuesday, hitting  $29.09 per ounce– 3.5% up on last week’s close – after extending gains from yesterday’s trading.

“This changes [silver’s] posture to bullish,” says the latest technical analysis note from bullion bank Scotia Mocatta.

“There was congestion in the $28.00 area and this should provide some support, while the next target is the $29.90 high from June.”

Dollar gold prices meantime climbed to their highest level so far this month this morning, hitting $1626 per ounce.

By contrast, the gold price in Euros traded lower, falling to €42,069 per kilo (€1308 per ounce), just below last week’s close, as the Euro extended gains against the Dollar to breach $1.24.

Stocks and commodities also traded higher, while US, UK and German government bond prices fell, following fresh reports that Eurozone policymakers are looking at ways of limiting the borrowing costs faced by struggling single currency members.

European Central Bank president Mario Draghi has received the backing of fellow ECB Executive Board member Joerg Asmussen, who tells Germany’s Frankfurter Rundschau that a new program to buy Eurozone government bonds will be “better designed” than previous ECB interventions.

“A currency can only be stable if its future existence is not in doubt,” says Asmussen.

“We operate within our mandate, which is primarily aimed at guaranteeing price stability in the medium term for the entire Euro area.”

Britain’s Telegraph newspaper meantime says it can “confirm reports” from Germany’s Der Spiegel that ECB staff are studying plans to put a limit on Italian and Spanish sovereign bond yields.

“[Asmussen’s] choice of wording is crucial,” says the Telegraph’s Ambrose Evans-Pritchard.

“If it can be shown that the ECB is acting to avert [Eurozone] break-up – known as “convertibility risk” – bond purchases would no longer be deemed a bail-out for Italy and Spain.”

Spain successfully auctioned €4.5 billion of 12- and 18-month debt Tuesday, at lower borrowing costs than those faced at similar auctions last month.

Elsewhere in Europe, Jean-Claude Juncker, who heads the Eurogroup of single currency finance ministers, is due to visit Athens tomorrow to discuss Greece’s request for an extension on its austerity program.

“The market focus is on the meetings that are happening in and around Greece and the key question is whether or not they allow an extension to the fiscal adjustment program,” says Geoff Kendrick, head of European currency strategy at Nomura in London.

The adjustment required from struggling European nations “is at best only half complete”, according to a report published by Moody’s this week.

China’s central bank meantime injected 220 billion Yuan into the financial system Tuesday, although borrowing costs still ticked higher, Bloomberg and Reuters report.

The People’s Bank of China used so-called reverse repos, exchanging its cash for borrowers’ securities for an agreed period, in an effort to boost current levels of market liquidity. The use of reverse repos is an alternative to cutting interest rates or the reserve requirement ratio, the proportion of their assets institutions are required to hold as reserves.

“The market demand is quite large,” one Shanghai trader told Reuters this morning.

“Monday’s demand was really heavy. The central bank’s action today basically just satisfied current demand, but didn’t in any way exceed it in a way that would bring rates down.”

“We still expect a reserve requirement cut,” adds Dariusz Kowalczyk, Hong Kong-based strategist at Credit Agricole.

Chinese platinum imports doubled last in July compared to a year earlier, while imports of silver bullion fell by 4%, Reuters reports, citing customs data.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Central Bank News

Article by AlgosysFx Forex Trading Solutions

As the Euro area peripheral nations are at best halfway through correcting the economic imbalances that helped cause the debt crisis, the European currency advanced by 8 pips versus its American complement. The pressing on with structural reforms and adjustments, both in the periphery and the core, have already taken places to a significant degree.

The Euro is likely to persist to appreciate seeing that policymakers in the struggling nations of Europe’s periphery are trying to rewire their economies to generate the growth they need to pay their debts. The European Union and the International Monetary Fund have pledged at least 393 Billion Euros in aid to Greece, Ireland, Portugal and Spain to help them pay their bills while they implement reforms. Moody’s noted progress in some countries’ trade balances and labor competitiveness.

Meanwhile, although US consumer sentiment improved in early August to the highest in three months as sales at retailers and low mortgage rates spurred Americans to boost their buying plans, the disappointing growth and hiring in the spring deters a continued concern about the outlook of the US economy. With stubbornly high unemployment and a weaker global economic picture, some analysts have raised their expectations that the Federal Reserve could launch a new round of bond buying to help prop up the economy.

Hence, the competitiveness gains in the Euro area periphery that seems to have come about as a result of improvements in productivity versus the concerns about jobs and growth in the US accordingly sees that a buy position be apt for the EUR/USD pair.

For more news, analysis, technical charts and candlestick analysis, visit AlgosysFx

Forex Daily review brought to you by REAL FOREX | www.Real-forex.com

 

 

 

 

 

 

By MoneyMorning.com.au

You’ll soon think back longingly to the times when Australian banks were stupidly profitable:

‘Remember the good old days when The Age reported, ‘the combined yearly profits of the big four banks now total more than $1000 for every person in Australia.’ Back then, people thought profits were bad. Ha, little did they know…’

The Australian banks might be profitable right now. But for good reason. It’s their last gasp. Australia’s banks are about to get hit with a double whammy. Banking is about managing the asset side of the balance sheet, and the liabilities side. It’s a question of what to invest in, and how to fund those investments. Both sides are in trouble.

Pretty soon, you’ll be contributing to more than the bank’s profits as a customer. You’ll be on the hook for their government bailouts and their cosy monetary policy relationship with the central bank. You’ll be paying tax, the inflation tax and the interest on Australia’s ballooning sovereign debt. Then you’ll wish the banks were profitable again.

On the asset side, Australian banks are in trouble because the loans they made and the collateral they took are dodgy, to the extent that the banks are now indirectly raiding retirement funds so borrowers can avoid foreclosure. Last year this added up to $100 million taken from retirement savings and shovelled into bank profits.

On the liabilities side, Australian banks are about to go from being awash in funds to needing a central bank rescue. The kind we’ve seen all around the world.

Foreign Lenders About to Desert the Australian Banks

First, to the liabilities – how the banks get the cash they lend. As the Australian economy continues to slow down, Reserve Bank interest rates will fall. That will end the interest rate arbitrage that’s been going on.

Foreign investors, faced with near 0% interest returns in Europe, the US and UK, have been ‘investing’ in Australia to capitalise on our higher rates. That’s provided the banks with plenty of funding. And pushed up the Australian dollar. But if all that foreign cash goes home, it will leave the banks high and dry.

Ben Davies of Hinde Capital told listeners of King World News how this plays out:

‘Australia is running out of luck. This is a country that’s got an oversized banking system very reliant on external financing. They’re going to have the bursting of a housing bubble. Really, this has been masked to some extent by the great resource boom that’s been coming out of China… So I think what’s going to happen is the RBA is going to continue to reduce rates. At some point there is potentially going to be a balance of payments crisis… I think foreigners could actually pull funding to the Australian banks. I think that the RBA will do what the European Central Bank did, which is… an LTRO type vehicle – provide liquidity – because domestic savers are not in a position to fund the banks in Australia. And obviously they can’t afford for the banks to go down.’

Davies also reckons the Australian dollar’s recent strength comes from foreign central bank buying. As an aside, the Australian dollar will collapse if Davies is right and foreign investors pull out of Australian banks.

All the cash will go home, flooding the world with Aussie dollars. That is usually a good thing for exporters because their goods appear cheaper to foreign buyers. But it’s tough for exporters to take advantage of that if the banks have less cash to lend out.

The Australian banks know that foreign capital is about to desert them. They’ve been issuing hybrid securities left right and centre to shore up their funding. And people have been buying the new securities, which have the worst characteristic of debt and the worst characteristics of equity baked into them.

But this source of funding won’t be enough. There aren’t enough savings in Australia to support our huge financial services sector. As soon as debt begins to contract on an economy wide basis, credit bubble businesses like banks begin to struggle because there is less cash to loan out.

The Festering Problem in Australian Banks

In the meantime, over on the asset side of the balance sheet, you’ve got the festering housing bubble. And Australia’s secret sub-prime lenders, who have had some success suing the banks. When loans start going bad and houses cannot be sold for more than the loan taken out to buy them, the banks’ assets will be in trouble.

They’ll be making less money and they’ll be left owning assets that are falling in price.

What’s really worrying, even if you’re not planning on being a borrower or bank shareholder, is that most of the economy is reliant on Australian bank funding. Before banks funded just about all business, businesses funded the purchase of their inventory with equity – cash they brought into the business. Their profit would be the difference between the cost of what they bought and what they sold it for.

But the Australian banks allowed this process to happen on steroids. Instead of only buying the inventory you can afford with investors’ cash, you can now buy vastly more of it using borrowed cash. Once it’s sold, you repay the debt and earn vastly more in profit because of the far larger amount of bought and sold inventory.

Of course, everyone else figures this out. They did more than two hundred years ago. So profit margins were simply squeezed back to where they were before debt financing became the norm. But the economy can still buy and sell the vastly increased amount of goods funded by debt. That makes everyone better off.

Especially the banks. But it also makes things very fragile. If the banks struggle and stop lending, inventory can’t be bought. Shelves go empty.

The hidden problem is that bankers don’t just lend out money they borrow from someone else. They also lend out money they create out of thin air. Without real savings funding borrowing, banking becomes a Ponzi scheme. At some point, the game is up because the banks lent more than they took in. That’s why financial crises happen so easily.

You Won’t Believe This

Don’t worry too much about all this. The bankers have a solution. It’s called ‘The Banking and Finance Oath Limited (BFO)’. You cannot make this stuff up (our emphasis added):

‘The Banking and Finance Oath Limited (BFO), incorporated last month, will oversee and enforce a voluntary oath of conduct to be sworn by professionals employed across the Australian financial services industry.

This is the oath:

‘“Trust is the foundation of my profession
I will serve all interests in good faith
I will compete with honour
I will pursue my ends with ethical restraint
I will create a sustainable future
I will help create a more just society
I will speak out against wrongdoing and support others who do the same
I will accept responsibility for my actions
My word is my bond.”

‘Unlike other professions, such as medicine and law, where practitioners are bound by professional oaths for the duration of their careers, the banking and finance oath may endure for only 12 months. If members don’t renew their annual subscription to the company their oath lapses as a binding commitment.

‘Under the BFO’s constitution, members are also free at any time to terminate their obligations if they believe they are no longer able to adhere to each of the oath’s nine tenets.’

Can we read from that that if any banker doesn’t renew membership they’re admitting that they won’t serve all interest in good faith, they won’t compete with honour, they won’t pursue their ends with ethical restraint, they aren’t interested in a sustainable future or a more just society, and they won’t speak out against wrongdoing or accept responsibility for their actions?

It seems their word is their bond, but only for 12 months at a time. And even then, ‘members are also free at any time to terminate their obligations’.

Best of all, the people running this thing are the bankers who it’s supposed to be protecting you from. And the very same ones who will be held responsible when their company is doing something wrong. What do you think they’d do if any whistleblower was dumb enough to come to them?

Until next week,

Your mortgage-free editor,

Nick Hubble

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By MoneyMorning.com.au

You only have to look at the stick given to the Olympics coverage by Channel 9 in Australia and NBC in the US, to see that network television channels are going through their final days of life as relevant content providers.

The funny thing is, they still can’t see the writing on the wall.

NBC received some of its best ever viewing figures for a non-US Olympics. And according to The Age (during the Olympics), ‘Despite criticism of Nine’s coverage it has been averaging around 1.7 to 1.8 million viewers every night, which Mediaweek editor James Manning said was “probably spot on with what they were hoping for”.’

Both Channel 9 and NBC are making a classic mistake. They see an increase or plateauing of viewership and assume they’re on the right track. What they can’t see are the millions of viewers that didn’t watch their service.

Such as the millions of Americans that used social networking and online applications to watch the Olympics live, rather than being forced to watch delayed coverage on network TV.

People Want Choice

It also explains why Foxtel’s eight-channel coverage knocked Channel 9 for six. As The Age reported, ‘Foxtel attracted its biggest audience ever for an event, with an audience peak of 1.2 million on Sunday night and averaging over 900,000 since then across its eight channels.’

Put simply, about 20% of the Aussie households that have a TV watched Channel 9′s coverage, whereas about 36% of the Aussie households that have cable or satellite TV watched Foxtel’s coverage.

It’s proof that people want choice. They want to decide what they watch and when they watch it…not when a stiff-necked media crony tells them they can watch it. Viewers want a choice of events, not the one event the TV exec chooses.

And if the TV execs want more proof, they should check out the latest advertising growth rates forecast for 2012-2016. They’re not good viewing for network TV execs…or for magazine and newspaper men either:

Click to enlarge

Free-to-air TV advertising is forecast to grow slower than even outdoor and cinema advertising at just 1.8% per year. Compare that to the 12.1% forecast growth rate for Internet advertising.

The forecasts are in a report by PricewaterhouseCoopers (PwC), Australian Entertainment and Media Outlook 2012-2016.

There are two big reasons for the shift. First, the Internet is still a growing medium. That’s thanks to the advent of social networking websites, but future growth will also come from Internet TV (IPTV).

The Shift Away from Traditional Advertising

The second reason is that online advertising can be tracked, monitored and reported on much more effectively than TV, radio or newspaper advertising.

Advertisers can set up and adjust an online advertising campaign in seconds — Google and Facebook are two of the more popular online advertising markets. This means a company knows exactly how many people have seen their ad, how many of those clicked on the ad, and how many of those actually bought something.

A marketing manager can tell within hours whether a campaign has worked or not. That’s not the same for TV, radio or newspaper advertising. The outcome is much less clear. The ratings and circulation numbers only tell you how many people were tuned in to the TV or radio, and how many bought the paper.

But it doesn’t tell you who actually saw or read the ad. And you can’t be certain whether someone bought the product because of the TV ad at 6:07pm, the radio ad at 8:14pm, or the newspaper ad from the day before (or which newspaper ad in which paper).

In other words, the old style of advertising is immeasurable, whereas Internet advertising is measured down to the individual buyer. And if PwC is right, the new advertising medium is about to take another leap.

As the Australian Financial Review pointed out, ‘PwC predicts mobile advertising spending will achieve compound annual growth rate of 46 per cent over the next four years, to reach $90 million by 2016.’

That’s still only a fraction of the free-to-air advertising market, which stands at $3.3 billion per year. But it’s fast catching up with magazine advertising, which this year fell 8.5% to $571 million.

Given a choice between a high-risk but growing sector and a high-risk but declining sector, we know which we’d rather bet on…Internet all the way.

Kris Sayce
Editor, Money Morning

From the Archives…

A Housing Bubble…Upon Bubble…Upon Bubble
17-08-2012 – Nick Hubble

How Government Extortion is Happening Right Before Our Eyes
16-08-2012 – Kris Sayce

Are Gold Stocks About to Turn?
15-08-2012 – Dr. Alex Cowie

The Amazing Ethanol Scam in the USA
14-08-2012- Jeffrey Tucker

Why I’ve Done a U-Turn on Solar Energy
13-08-2012 – Kris Sayce

Advertising Growth on Demand

By MoneyMorning.com.au

On a flight the other day, I noticed that a third of the passengers were reading a certain best-selling book. It got me thinking.

Every politically active group wants something from government, and government is happy to oblige. It’s even more obvious in the election season.

Another way to put it: Government has lots to give in the way of laws, loot, privileges, protections and punishments. Every pressure group and political party has an idea about how its power over us needs to be used.

Does it make any difference who gets the loot, really? Not really, not to you and me. Whether you are taxed to make bike paths in Palo Alto or to fund reconnaissance missions in Kabul, you are still denied use of your money so that politicians and bureaucrats can realize their dreams.

Whether the regulations say that you can’t work for less than $10 per hour or that you can’t buy raw milk at any price, your freedom to make contracts is still being compromised.

We can and will argue interminably about how government ought to be used. Should government prevent gay people from contracting unions or stop private companies from discriminating against people who chose gay unions?

Either way, the state is being brought in to tell people what they can and can’t do. In this sense, the left and the right have more in common than either side cares to admit: Both have a plan for how the state can better manage the social order.

Should tobacco be banned or bailed out? Should banks be made too big to fail or badgered with regulatory restrictions so they can’t do real business? Should corporations be protected and subsidized, or should they be taxed within an inch of their lives? Should fatty foods be mandated as part of a national diet or kept off the menu as a health hazard?

The Only Winner is Always Government

These are the great debates of our time. But these are actually not fundamental debates at all. Either way, the only real winner here is government, its agents, its public spokesmen, its powers and its place in our lives and the culture. This is what remains unquestioned.

Should seniors be able to rob young people of their earnings in order to enjoy a luxurious retirement, or should seniors be especially taxed and punished for using more than their fair share of society’s health care resources? Whichever way that debate ends up, liberty itself suffers, and the property rights of everybody are less secure.

Should religious people be able to control what we watch, read and smoke, or should secular people be able to impose laws that keep religious people from having too much influence over our culture? Either way, government is being granted more control over the social order than it should have.

This is the great tragedy of living under leviathan. People have different ideas about how it ought to conduct its affairs. Who should be rewarded? Who should be punished? Who gets the privileges? Who must bear the cost? It becomes a war of pressure groups, everyone seeking to live at the expense of everyone else.

What is this thing we call government? It consists of the gang with an institutional structure that makes the rules, enforces the rules, and lives by rules that are different from those it imposes on the rest of the population.

We can’t steal, but government can. We can’t kill, but government can. We can’t counterfeit, kidnap, and engage in fraud, but government can. This thing called government, obviously, has a strong interest in maintaining its power, prestige, and funding.

This is true no matter what the structure of the government happens to be. Oligarchy, absolute monarchy, constitutional monarchy, presidential republic, parliamentary republic, democracy – all of them have one thing in common: They create a special caste of citizens that live at the expense of everyone else.

In a democracy especially, government enlists us all in its cause. So long as people are arguing about how to use the government, and not whether it should be used to achieve social and economic goals at all, the government comes out the winner.

All the pressure groups are really just rewarding the political class, transferring power and money from us to them. Precisely what the excuse is – and it changes all the time, sometimes subtly and sometimes dramatically – doesn’t matter to government.

A Different Government – The Time For Change is Now

Government is a chameleon, pleased to wear any cultural or ideological cloak to blend in with its social and cultural surroundings. In a wrangling, struggling, grasping, dog-eat-dog democracy like ours, there are 50 shades of government, each suitable for a particular time and place, each adapted to purposes of the moment, all with the interest of firming up control by the ruling class.

This is what the “political spectrum” is all about. Government dominates and we submit. It puts us in bondage and we obey its discipline. There’s also got to be a good excuse or else we would never put up with this. We have to believe that the government is, in some way, at some level, doing something that pleases us. Maybe even the government is us!

People say that in the “age of faith” of the Middle Ages, religious differences led to wars. Historians who have looked carefully have noticed something different. Governments that want wars are happy to use religion as the excuse.

And so it is today. In the “age of science,” we get scientific social planning in which experts are supposed tell the people with their hands on the controls how to use them.

But whether the excuse is religion or science, security or the environment, nationalism or internationalism, it doesn’t matter to the rest of us. The rights and liberties of the people paying the bill are forever being sacrificed to someone else’s political agenda.

We drag ourselves to the voting booth and look at the names and try to remember what these various people promise to do for us and to us if we ratify their right to rule. Having done so, we are told that we’ve made our choice and now we must live with it.

But maybe it is not really a choice at all. Maybe it is time to let go of our dependency and reject the entire master-slave relationship that is the whole basis of the system itself. Fifty Shades of Government has been the best-seller for hundreds of years. It’s time that the governed write an entirely new book.

Jeffrey Tucker
Contributing Writer, Money Morning

Publisher’s Note: This is an edited version of an article that first appeared in Laissez Faire Today

From the Archives…

A Housing Bubble…Upon Bubble…Upon Bubble
17-08-2012 – Nick Hubble

How Government Extortion is Happening Right Before Our Eyes
16-08-2012 – Kris Sayce

Are Gold Stocks About to Turn?
15-08-2012 – Dr. Alex Cowie

The Amazing Ethanol Scam in the USA
14-08-2012- Jeffrey Tucker

Why I’ve Done a U-Turn on Solar Energy
13-08-2012 – Kris Sayce

Fifty Shades of Government

By The Sizemore Letter

Mexico gets no love. It’s not quite a developed market, but being next door to the United States it’s not quite remote or exotic enough to be an alluring emerging market either. And starting with the letter “M,” it doesn’t fit into any popular acronyms.

Lest you think I am joking, the four countries that comprise the “BRIC”—Brazil, Russia, India and China—have nothing in common other than the fact that their first letters make a word that sounds good in marketing literature. Mexico, Turkey, and Indonesia would all have been better choices than Russia—all three are promising emerging markets whereas Russia is a decrepit petrostate on the decline—but it’s hard to form an acronym with their first letters. Go ahead. Try. I’m waiting.

Investors who overlook Mexico do so to their own detriment. In addition to being an attractive market in its own right—and the second-largest in Latin America after Brazil—Mexico is also a large investor in other Latin American markets, and some of its multinational companies have a truly global scope.

The Mexican stock market has also been a star performer in 2012. At time of writing, the Mexican IPC Stock Index was up over 10 percent, making it one of the better performing markets in the Americas.

Mexico’s economy is tied closely to that of the United States—“El Coloso del Norte” accounts for more than 70% of Mexico’s substantial exports—so a relapse into recession by the United States would severely crimp growth south of the border. I am not expecting a U.S. recession, however, and instead expect the U.S. economy to muddle through with positive, if modest, growth.

The drug-related violence in northern Mexico is also disconcerting—and bad for cross-border commerce and tourism—though I don’t see it being a deal breaker for investors in Mexican stocks. If I were the CEO of a U.S. manufacturing firm, I might think twice about setting up a new factory in Mexico. But as a portfolio manager looking for access to rising Mexican consumer incomes, the risks are tolerable.

Investors wanting exposure to Mexico can buy shares of the popular iShares MSCI Mexico ETF ($EWW). But today, I’m going to recommend three solid Mexican multinationals I expect will outperform the broader index.

I’ll start with America Movil ($AMX), the international cellular service juggernaut controlled by billionaire Carlos Slim. America Movil is the chief competitor in Latin America of long-time Sizemore Investment Letter recommendation Telefonica ($TEF). America Movil is dominant in the lucrative Mexican market, and it is a force to be reckoned with in most of South America.
Mobile phones are ubiquitous in Latin America, but the market is still far from saturated. And the upgrade cycle to higher-margin smart phones is just beginning.  America Movil is a fine way to invest in the emerging market consumer.

The next pick is Mexican media giant Grupo Televisa ($TV), one of the largest in the Spanish-speaking world.  Televisa is best known in the United States for the soccer games, colorful game shows and (truly awful) telenovela soap operas broadcast by its Univision segment, but the company’s operations include paid television and print media as well.

Like America Movil, Televisa is a play on rising incomes in Latin America and rising incomes and influence among the U.S. Spanish-speaking population. As Latin consumers climb the income scale, the returns to advertising to them rise as well, which benefits media companies.

Mexican and South American consumers are also embracing paid TV in higher numbers, which was the rationale for my recommendation of DirecTV ($DTV) in the Sizemore Investment Letter. This is a long-term trend that should have multiple years to fully play out.

The last pick will be a little more controversial: Mexican cement giant Cemex ($CX). Cemex is one of the largest cement and construction materials companies in the world. Not surprisingly, Cemex got absolutely hammered during the Great Recession, as new building projects ground to a halt in many countries.

Cemex also fell victim to crisis of its own doing. The company borrowed heavily to finance its international expansion, and when the Mexican peso plunged in value during the 2008 meltdown the company fell into financial distress due in part to its use of derivatives.

Cemex’s share price lost more than 90% of its value in the aftermath, but since then the company has stabilized. The share price has more than doubled in the past year, and more gains are likely if conditions in the global construction industry at least remain stable.

Disclosures: Sizemore Capital is long DTV and TEF.

SUBSCRIBE today to get Sizemore Insights via e-mail.

Related posts:

• Turkcell: Emerging Market Growth at Crisis European Prices
• Sizemore in the Media: Emerging Markets

London Gold Market Report
from Ben Traynor
BullionVault
Monday 20 August 2012, 07:00 EDT

SPOT MARKET gold bullion prices dipped back below $1615 an ounce during Monday morning’s London trading, the level at which they ended last week.

“The 11 week moving average comes in at $1601,” say technical analysts at bullion bank Scotia Mocatta, pointing out that gold has now ended the week above that level for four weeks in a row.

Silver bullion meantime failed to hold on to gains from Monday’s Asian trading, falling back towards last week’s close at $28.10 per ounce this morning in London.

Other commodities were broadly flat, with copper losing some ground, while European stock markets edged higher, with the exception of the FTSE in London, which was slightly down by lunchtime.

“The gold market this week is likely to be driven predominantly by political factors,” says a note from Commerzbank.

Jean-Claude Juncker, head of the Eurogroup of single currency finance ministers, is expected to visit Athens Wednesday to discuss Greece’s request for a two-year extension to its austerity program.

A day later, German chancellor Angela Merkel and French president Francois Hollande are due to meet in Berlin, while on Friday and Saturday Greek prime minister Antonis Samaras is expected in Berlin and Paris to continue discussions over extending the Greek program and possible additional aid.

“We cannot create yet another new program,” said German finance minister Wolfgang Schaeuble on Saturday.

“It is not responsible to throw money into a bottomless pit.”

The European Central Bank meantime is expected to discuss the possibility of setting interest rate limits on sovereign bonds when it meets next month, according to a report in Germany’s Spiegel magazine.

The limits would apply to so-called spreads over bunds – the difference between the interest rate on a given nation’s government bonds and the yield of German government debt – and would trigger ECB intervention in the market, the magazine reported.

Were such a policy to be announced, “many in the market would still have doubts about whether the ECB has the capacity to make [it] work,” says Elwin de Groot, senior market economist at Rabobank.

“[The ECB would need] to pledge unlimited purchases which I think does not really fit with their mandate.”

“If we start doing that, we won’t stop,” said Germany’s Schaeuble Saturday when asked about ECB bond buying.

“It’s like when you start trying to solve your problems with drugs.”

“Despite these objections we would not be surprised at all to see this spread limit idea used,” counters Steve Barrow, head of G10 research at Standard Bank.

Here in London, the Bank of England was “naïve” to think that banks were not behaving dishonestly in making interest rate submissions to the Libor panel, the body that sets the interbank lending rate, a UK parliamentary report published Saturday says.

The report, entitled ‘Fixing Libor: some preliminary findings’, also expressed concern over Bank governor Mervyn King’s role in the departure of Barclays chief executive Bob Diamond, who resigned last month after Barclays was fined for interest rate manipulation.

“Whatever the merits of the action taken by the Governor of the Bank of England and the Chairman of the [Financial Services Authority],” the report says, “the action they took has exposed implicit, and potentially arbitrary, power to force out senior figures in the financial services industry. The return of the ‘Governor’s eyebrows…comes with the need for corporate governance safeguards.”

Over in New York, the so-called speculative net long position of gold futures and options traders – calculated as the difference between the volume of bullish and bearish contracts – fell slightly over the week ended last Tuesday, figures published Friday by the Commodity Futures Trading Commission show.

By contrast, the world’s biggest gold ETF, the SPDR Gold Trust (GLD), saw its biggest one-day net inflow since last November on Friday. The volume of gold bullion held to back GLD shares rose by 0.9% to 1274.7 tonnes – the highest level since July 9.

Here in London, volume of gold bullion transferred between major bullion banks fell by 6.4% in July compared to a month earlier, according to London Bullion Market Association clearing statistics released Friday. Year-on-year the fall was 9%, although the number of individual transfers rose by nearly a third.

The volume of silver bullion transferred also fell last month, down 5.3% from June and 11.5% year-on-year.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

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